Rating agencies "Miss" Iceland Rebound

The credit rating companies that were too slow in predicting Icelandâs economic collapse in 2008 may be underestimating the strength of its resurrection.
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Icelandâs experience shows the rating companies may be overcompensating after failing to identify some of the risks that led to the global financial crisis, said Armann. While Moodyâs kept a Aaa rating on Iceland until five months before its banks collapsed, reluctance to raise the islandâs credit grade now is blocking the countryâs access to a broader investor base. Debt derivatives show the low ratings may be unwarranted as credit default swaps on Iceland indicate itâs less likely to default than euro member Spain.

âIf things turn out better than expected, the rating can move up,â said Paul Rawkins, a senior director at Fitch in London, in a phone interview. Still, there are âuncertainties that need to be taken into account,â he said.
âNo Discrepancyâ

Moodyâs head of media relations for Europe, the Middle East and Africa, Dan Piels, said the companyâs ratings âreflect a multitude of factors, only one of which is access to international bond markets,â in an e-mailed reply to questions. âThere is no discrepancy in the ratings of Iceland and eurozone members.â

The mkt was a rabid buyer of AAA-rated Iceland in 2008. It turns out that the mkt was stupid. The ratings agencies were wrong when they agreed with the mkt back then. Today the mkt is bullet bid again, but now the ratings agencies are wrong when they disagree with the mkt's optimistic assessment.